Can Asia beat Apple?

For analysts, a company as innovative as Apple could never be Asian. Recent example, Samsung found guilty by a Californian court of stealing Apple’s Intellectual Property. With the next iPhone imminent, Apple appears more invincible than ever. And yet, this victory may well signal both the peak and start, of the decline of the Apple Empire. [Written on September 5th 2012]

An amazing decade

The man who created the Personal Computer as we know it – the Macintosh of 1984 – did it again, not just once, but twice.

The iPod (2001) and iTunes Music Store (2003) were just the appetiser. In 2007, Apple released the device the world digital industry had been trying to invent themselves: the iPhone. And the story does not end there.In 2010, Apple did it again with the iPad tablet.

Now worth over $600bn, Apple went from near bankruptcy (1996) to most valuable company of all time, its heft more than China Mobile and PetroChina combined.

In 2003, Apple (AAPL) share price was still 10$. It is now over 600$.From bankruptcy to world major in ten years, the prowess deserves a close examination. How did Steve Jobs do it?

Visionary marketing

Henry Ford (1863-1947) explained: “If I asked my customers what they wanted, they would probably say, we want a faster horse”, (and not the famous Model T of 1908). To visionaries like Ford and Jobs, the spoils for a rich future. Leaving those who keep scratching the market for clues to lose in a cruel zero-sum game.

Apple is what Sony should have been, when Akio Morita famously invented the Walkman while playing golf. The meteoritic rise of Apple is major defeat for the former champion of innovation and creativity in the field of Consumer Electronics.

Not to mention ailing Panasonic, NEC, Hitachi, Toshiba, Sharp, Fujitsu, all now dwarfed by Apple or Samsung.

If Apple’s triumph underscores the decline of the Japanese electronics industry, its most tragic casualty by far is Nokia.

Ten years ago, the Finnish company ruled the mobile phone domain. With unlimited resources, Nokia’s top brains sat down with the mission to invent the phone of the future. They concluded that it won’t be just a phone, it will also be a computer and a consumer electronic device (CE). And the logical conclusion was: “We must now emulate Microsoft and Sony, the king of PCs and the emperor of CE”.

The following years, Nokia proudly released a series of hybrids, or rather monstrous chimeras: a phone morphing into a game console, into a camera or a laptop computer. But no future super-phone.

At Nokia, they were confident to be inventing the future. In fact, they just sunk the company.

In 2007, the year iPhone launched, Nokia shares had peaked at $40. They are now worth $2.7. Apple share (AAPL) traded around $10 in 2003. It has now surpassed the $660 bar.

Skills you don’t learn at university

The Apple story is of one man who single-handedly humiliated the world marketing elite out of Harvard, Stanford, Wharton, Columbia, and other MIT.

It may be a no-brainer – you put Ivy League graduates round a brainstorm table and they will come up with rational ideas. Ideas that make sense, but ideas that may just as well be lethal. Perhaps it's no surprise that Henry Ford, Bill Gates, Steve Jobs and Walt Disney were all school drop-outs.

The visionary manager need not be an inventor. In fact, Jobs was a self-avowed stealer of ideas. “Good artists copy, great artists steal” he once shamelessly admitted.

The Macintosh (1984) mouse and Graphic User Interface (GUI) were spotted by Jobs during a famous and documented 1979 visit to Xerox PARC (Palo Alto Research Centre). The iTunes/AppStore architecture takes from the Japanese DoCoMo i-Mode (2000), both heavily inspired by 1982 French Minitel.

Jobs recognised what he owed to the clever Minitel ecosystem model, at a time when the French invented Social Networking twenty years before Facebook was born.

Identifying a game-changer before anyone else and anticipating all its implications is what separates the visionary from the rest.

Be inspired: Jobs and the Beatles

As a (late) baby-boomer, Steve Jobs was obsessed with the Beatles.

Same John Lennon’s round glasses, same company name and logo… Steve Jobs would never concede any relation between the two companies, claiming Isaac Newton as his sole inspiration. In fact, Apple Corp (Beatles) and Apple Computer (Jobs) went 3 times to court to reach a final settlement to their Copyright case.

But the clues are too many and they all lead to the famous pop band. “I think of most things in life as either a Bob Dylan or a Beatles song” Jobs famously said.

In the footsteps of Beatles Maharishi Mahesh Ashram visit in Rishikesh (1968), Steve Jobs also started his adult life with a journey to India.

And the identification gets even deeper than that. As Lennon-McCartney was the 60s most talented pair of composers, Jobs-Gates would be the 80s most iconic duet inventing the entire Personal Computers industry.

In this identification process, it is not difficult to recognise Steve Jobs as John Lennon, and Bill Gates as Paul McCartney.

Once interviewed along with Gates in the late 90s, Jobs quoted a line from “Two of us”, a Beatles song which says “You and I have Memories Longer Than the Road That Stretches out Ahead”

And when it comes to the tedious refining process that goes from the drawing board to the perfection of an iPhone, Jobs could only think of Lennon’s patient work from the demo tape of “Strawberry fields forever” (Anthology 2) to the complex and sophisticated piece of music that came out of it.

Was the cartoon “Yellow submarine” (1968) a secret inspiration for Pixar? Who knows.

Capacitive touchscreen is the game changer

For Jobs, user experience is paramount. The mouse and GUI formed the game-changer that led to the Macintosh (1984). In the Noughties, it was the touchscreen, not the resistive type that uses a stylus, but the finger-operated capacitive touchscreen that lets the user physically interact with the page.

He shifts, flips, bends, twists the pages in a completely new user experience, twenty years after the mouse.

In-house evolution, mature out of the box

Spotting the game-changer is only the first part of the story. Most industry players would release a “work in progress” immature device. Not Jobs. He embarked on a three-year-long maturation phase in the secrecy of Apple R&D labs. Touchscreen technology was brought to its full potential in a forced and accelerated evolutionary process.

In fact, the LG Prada was the very first capacitive touchscreen phone to hit the market early 2007, beating the iPhone by a few weeks. But the Korean company released an immature product, betting on market feedback to improve on it.

Steve Jobs would only make public a product perfect out of the box.

Everything is redesigned, from the size of the icons, to the logic of the menu and manipulation of pages. A new vocabulary emerges to describe the user experience: tap, pan, flick, pinch and spread to zoom, and other multi-touch gestures. And the obsessive Jobs would not concede until the touch was as slick and as smooth as silk. That is the secret to iPhone and iPad multi-year dominance and all-time high valuation for a private company.

“Make your projects as obscure and impenetrable as the night….

….But when you decide to move, fall on the enemy like lightning.” You don’t have to read Sun Zi to understand the advantage of by-passing the Darwinian evolutionary process to stun the market with the perfect specimen out of the box. The competition is just wrong-footed and doesn’t know where to go next. What is this device? a gadget? an eco-system? an optimised supply chain? It took five years for the Android team to figure out what made the iPhone experience so unique. Only in July 2012 did Android 4.1 Jelly Bean close that final gap with “project butter”, a special development meant to achieve that extra smoothness that Jobs obsessively wanted back in 2005.

Moreover, during those three years away from the public eye, Apple was comfortably patenting all aspects of the new touchscreen functions. The Patent Office was very generous, granting Jobs monopoly rights on human gestures that obviously belong to the public domain: tap, pinch and other multi-touches.

But beyond patents, what Jobs really wanted was to secure the copyright, the exclusivity on the entire user experience. Jobs had a license to steal, but no one was supposed to copy him, or else…

“This changes everything, again.” No, not again!

Steve Jobs calculated his three-year head start for his products. To maintain the lead, the company had to further innovate while keeping competition at bay through patent-related lawsuits. Alas, three years was all it took Samsung and Android to catch up. The Samsung Galaxy S (March 2010) was a great match, not for the original 2007 iPhone, but for the yet-to-be-released iPhone4 (June 2010).

It took 11 years for Microsoft (with Windows95) to catch up with the 1984 Mac, but three years only for Samsung and Google to beat the iPhone. This shock-awe brought back bad memories: is Android the new MS-DOS / Windows that once dwarfed the Macintosh? It also raised a more metaphysical question: is Apple capable of evolution at all? When you claim your device to be perfect out of the box, you allow only incremental improvements. Don't expect a Galaxy Note stylus, or a Nokia Pureview camera, FM radio, SD card, USB port, file management or 3 buttons. The “less is more” mantra might just push iPhone to extinction.

Hard to invoke, like in the 90s, the spirit of those “crazy ones”, Einstein, Lennon, Gandhi or Picasso who could “think different”, when today’s customer is invited to live in an enclosed and minimalist environment that bans everything fantasy.

The Asian way

Western operative style is to first draw the “big picture”, a complete architecture, and then start working on building blocks. The iPhone, iPad, Amazon Kindle or Google Android, are just enabling devices part of a broad end-to-end service architecture.Contrary to the “big picture” model, Asian companies adopt a down to earth step-by-step approach. If something works, they tend to clone the entire genome. Then, as an opportunity comes along, they are quick to incorporate the piece of DNA that brings a competitive advantage and enrich the product. In this competitive environment, claiming the iPhone to be the ultimate creature at the end of an evolutionary line, might just condemn it to extinction.

The rise and fall of the Apple Empire

Steve Jobs’s overstretched “reality distortion field” is bound to retract. The only question is when. After a disappointing iPhone5 launch? Or in 2013, when the entire CE industry floods the market with more attractive and cheaper devices? What are the options for Apple? Buy Facebook and a retailer to enlarge its perimeter? Or surrender market share to preserve iPhone’s 40% profit margin?

An aggravated patent war might also lead to a geopolitical divide – Apple losing ground in Asia in trying to lock down its market in the West.

The next “Big Picture”

Whatever Apple’s fate, the next winners will have to combine Steve Jobs’ visionary magic with Western big-picture strategy, alongside Asian style pragmatism. Among the five Western champions (Google, Amazon, Apple, Facebook, Microsoft), Jeff Bezos’ Amazon comes closest to that winning formula. But Asia has what it takes to build its own “big picture”. A blend of Search (Baidu, Naver), Retail (Alibaba), and Social media (Cyworld, Jiepang, Renren, QQ, Weibo) with a mobile device (Samsung, LG, Lenovo, Xiaomi, Meizu, ZTE, Huawei) to channel customers. The future has just begun.